The Federal Reserve is starting to reduce asset purchases and oil is falling by 3%
The Federal Reserve is starting to reduce asset purchases and oil is falling by 3%: Members of the Federal Open Market Commission (FOMC) and other Federal Reserve officials ,
have been actively discussing for months the timing of starting to reduce the volume of asset buybacks that currently stand at $120 billion per month.
The Fed has been repurchasing $80 billion of US Treasuries and $40 billion of mortgage bonds per month since June 2020.
The decision on this ransom was widely made against the backdrop of the crisis
caused by the Covid-19 pandemic when the central bank needed to support the US economy.
Evest follows the outcomes of the federal meeting minutes in the following report.
Topics:
The outcomes of the federal meeting
Positive movements for Wall Street indices
Growth in US non manufacturing services business jumps to record levels
Oil declines with the announcement of a larger than expected increase in US inventories
The outcomes of the federal meeting
Federal Reserve Chairman Jerome Powell said after the meeting that it was too early for the Federal Reserve System (FRS)
to talk about an increase in the key interest rate and that the US Central Bank was willing to make a careful choice at the moment of its increase.
This is after its meeting with the Federal Open Market Committee (FOMC), which ended on Wednesday.
The Federal Open Market Commission (FOMC) also reportedly kept the federal interest rate within the range of 0% to 0.25% per year and
also announced that it would reduce the volume of asset purchases in November by $15 billion while continuing to cut the program in December.
The US Treasury purchases will be decreased by $10 billion – to $70 billion this month and mortgage bonds – by $5 billion to $35 billion.
In December
In December, the volume of buybacks will be decreased to $60 billion and $60 billion and $30 billion respectively.
Powell said that with this rate of cuts, the Federal Reserve will complete this by mid-2022.
He said that even as monthly asset buybacks decreased, the central bank’s policy will continue to provide serious support to the US economy.
The Chairman of the Federal Reserve Board added that he was willing, if necessary, to speed up or slow down the pace of reductions in asset buybacks.
According to Powell, the current consumer price dynamics in the United States are incompatible with the concept of price stability.
However, he remains confident that the reason for the increase in inflation lies in temporary factors associated with the Covid- 19 pandemic.
Speaking about the state of the US labor market, Powell pointed out that the current unemployment rate is exaggerating the employment recovery.
According to him, maximum employment in the US economy can be reached by the second half of 2022.
Commenting on the Federal Reserve’s role in states’ climate policy, Powell pointed out that the United States authorities should deal with the resolution of these issues,
not the Federal Reserve.
Positive movements for Wall Street indices
US stock indices, which were reluctant before the announcement of the results of the Federal Reserve meeting,
reacted positively to the decisions of the central bank – with indices rose by 0.2-0.9% during trading.
The dollar fell against the euro.
The euro rose to $1.1604, although it fluctuated around the closing level of the previous session – $1.1580 before the end of the meeting.
Although Federal Reserve Chairman Jerome Powell has repeatedly stated that
completing QE will not mean the US Central Bank is willing to raise its key interest rate,
investors’ predictions regarding the timing of its rise have changed dramatically recently.
Experts are increasingly predicting that the Fed will have to raise interest rates shortly
after the completion of the asset buyback program due to high inflation in the United States.
Growth in US non manufacturing services business jumps to record levels
Data from the Institute of Supply Management (ISM) released on Wednesday showed that,
the US Services Business Index (non-manufacturing ISM) jumped to a record 66.7 in October from 61.9 in September.
The experts interviewed by Trading Economics projected a rise in the index to 62 points.
In the meantime, Christine Lagarde,
president of the European Central Bank, said it was “highly unlikely” that the eurozone economy would allow the ECB to raise its benchmark interest rate next year.
“Our future guidance clearly states three conditions that must be met before prices are raised,”
Lagarde said during a speech in Lisbon on Wednesday.
“Despite the fact that we now see increased inflation in the eurozone, the medium-term inflation outlook remains weak,
and therefore the three conditions are unlikely to be met in the coming year,” she said.
Oil declines with the announcement of a larger than expected increase in US inventories
Benchmark crude oil prices fell by more than 3% after official data on US energy inventories,
which showed a larger-than-expected increase in oil inventories over the past week.
January Brent oil futures’ prices on the London Stock Exchange ICE Futures fall by $3.07 to $82.12 per barrel.
West Texas Intermediate crude futures’ prices for December in electronic trading
on the New York Mercantile Exchange (NEMX) fell by 3.56% to $80.92.
The U.S. commercial oil reserve rose by 3.29 million barrels to 434.1 million barrels last week,
according to a weekly report from the country’s Department of Energy.
Gasoline inventories fell by 1.49 million barrels to 214.26 million barrels.
Commercial distillate inventories rose by 2.16 million barrels to 127.12 million barrels.
In addition, the market awaits the next OPEC + meeting on Thursday, November 4.
Experts basically expect that the OPEC + ministers will decide to increase production next month,
according to the pre-approved plan – by 400 thousand barrels per day.